Arik Hesseldahl

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AT&T CEO Stephenson Defends Deal For T-Mobile From Senators

The Senate Judiciary Committee hearing on AT&T’s $39 billion plan to acquire T-Mobile is set to begin shortly. I’ll be liveblogging the action. The witness list promises to make it an interesting hearing. AT&T’s Randall Stephenson will be defending the plan and arguing that it will be a good move for all concerned.

Not everyone is on board with that. Among them, Dan Hesse, CEO of Sprint, whose company and a non-profit just pulled a controversial ad attacking the deal. In fact, the hearings title implies the mood: “The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?”

Also testifying: Victor H. “Hu” Meena, President & CEO of Cellular South; Gigi Sohn, President and co-founder of Public Knowledge; Larry Cohen, President of the Communications Workers of America, a union that has expressed approval for the deal; and Philipp Humm, President and CEO of T-Mobile.

7:26 am: So the hearing is underway. Right now we’re hearing an opening statement from Sen. Michael Lee of Utah.

Chairman Patrick Leahy is now making an opening statement. He says he’s concerned about the impact on parts of the country, rural areas like where he lives in Vermont. He says he’s only recently been able to get high-speed Internet access where he lives.

Leahy says that experts tell him that in Vermont AT&T and T-Mobile have large blocks of unused radio spectrum.

He says that AT&T has told him that 250,000 more Vermonters could get access to high speed access after the merger than pre-merger. He’s a little skeptical.

7:33 am: Sen. Chuck Grassley, the Iowa Republican, is speaking now. He says questions about this merger have been coming up at meetings with constituents back home.

Grassley is again addressing concerns about rural access.

7:35 am: Randall Stephenson is up first.

The witnesses are sworn in. And Stephenson is getting started.

Stephenson: This acquisition is about meeting consumer demand and giving consumers what they expect, which is fewer dropped calls and faster speeds.

Stephenson: In the last few years we’ve seen an explosion of networking and apps and other things. And our network has carried the load.

Stephenson: AT&T invested $75 billion in its network and continues to do so as the next wave of demand is coming. In 2015, by the middle of February, the network will have carried as much data as it did during the entire year in 2010.

Stephenson: He’s quoting FCC Chairman Julius Genachowski on the spectrum crunch.

Stephenson: To meet growing consumer demand we need more spectrum. Combining the two networks will add more capacity than if they were running separately.

Stephenson: With this transaction we’re committed to providing LTE service to 97 percent of the U.S. population, more than any other provider has committed to at this point.

7:41 am: We will deliver this with the only unionized work force of any major carrier in the country (this explains the CWA’s support of the deal.)

Philipp Humm is up, CEO of T-Mobile USA.

T-Mobile had been facing revenue declines in the last two years. The results of a new strategy have been mixed. Returning the company to growth will not be enough to secure T-Mobile’s strategic future.

Humm: T-Mobile faces an exhaustion of spectrum in several markets. And the parent company, Deutsche Telekom, is not in a financial position to invest enough to help it remain competitive.

Humm: With the acqusition by AT&T, T-Mobile will be able to offer all its customers the 850 MHz spectrum which will help its in-building coverage. The transaction will result in near-term network coverage benefits to T-Mobile customers.

7:45 am: Humm: The transaction will give combined company resources and spectrum to deploy LTE. T-Mobile doesn’t have enough to do it. Combining the companies will allow them to pool resources and do it.

Humm: The combination will drive down costs. The U.S. marketplace is competitive. Most Americans live in an area that is contested by as many as five different wireless carriers.

7:47 am: Dan Hesse of Sprint is up. He’s opposed to the deal. He’d like to talk about a “vertically integrated duopoloy” on the marketplace.

Hesse: Sprint was born out of competition. It took 100 years to build a billion fixed phone lines but only 20 to create 5 billion wireless ones.

Hesse: Creating an entrenched duopoly will hurt the marketplace.

Hesse: The acquisition will turn the clock back and “put AT&T–blown apart by the courts in the 1980s–back together again.”

Hesse: Sprint and T-Mobile apply downward pressure on prices.

Hesse: He says AT&T holds more spectrum than anyone, yet is warehousing. AT&T doesn’t use the spectrum it has.

Hesse: If AT&T is permitted to devour T-Mobile, the U.S. could go backwards toward last century’s Ma Bell. There are only three beneficiaries–the shareholders to AT&T, Verizon and Deustche Telekom–to this merger.

7:53 am: Meena, the CEO of Cellular South is up.

Meena: We can find nothing good about this acquisition.

Meena is going over some of the things he had to do to stay competitive in the old days of wireless, where local carriers competed.

Meena: AT&T and Verizon have abused their market position by doing exclusive handset deals. This was allowed because regulators were asleep at the wheel for most of the last decade. Are we entering the issue of the nationwide duopoly?

7:58 am: Gigi Sohn of Public Knowledge is up. She’s showing a T-Mobile TV ad.

Sohn: She says the vibrant market where players make fun of each other will end. She’s holding up a very old cellphone, saying that if the merger passes we’d go back to the days like that.

Sohn: T-mobile customers don’t want the combination, she says. After the deal was announced, people called into Public Knowledge asking what they could do to stop the deal. If this merger is approved, two companies will control nearly 80 percent of the market. Sprint will instantly become a target for takeover.

Sohn: If AT&T is concerned about spectrum availability it can stop operating three different kinds of networks.

Sohn: There are no spectrum shortages in rural America. AT&T would be better off spending $39 billion on improving its own network.

8:04 am: Larry Cohen of the CWA is up.

The merger with conditions, he says, with committments made is a critical way to get rural Americans access to broadband.

Cohen says that AT&T and T-Mobile have compatible technologies and that Sprint is supporting three different technologies, including the Wi-Max via its investment in Clearwire.

8:08 am: Q&A session is beginning.

Sen. Herb Kohl of Wisconsin is asking Stephenson some questions. Why is it not logical to assume that the loss of T-Mobile will cause competition to erode and prices to increase?

Stephenson: This is one of the most competitive industries in the world. One of the best ways to evaluate that is to look at pricing. There have been several consolidations. Over 10 years, voice pricing has come down 50 percent.

Stephenson: In four years, the pricing on data has come down 90 percent.

Stephenson: We’re within one or two years of not being able to grow our 3G networks in some markets.

Stephenon: Capacity is the basis for moving prices down.

8:11 am: Hesse in response to a question from Kohl says that the combined company would have significant leverage to become a gatekeeper.

Hesse: The two bells, AT&T and Verizon, do not have an interest in accelerating cord cutting.

8:14 am: Kohl is asking Humm about spectrum scarcity, citing some prior statements by the company saying there was no shortage of spectrum.

Humm: Both things are correct. Short term we have sufficient spectrum for data. We don’t have enough to launch LTE. We cannot start the LTE rollout because we don’t have the spectrum.

Sen. Lee is now asking some questions. He’s asking Stephenson why AT&T isn’t using all its spectrum holdings.

Stephenson: We are aggressively moving to launch LTE. Five years ago we began to move from second generation to third generation.

8:17 am: Stephenson is describing some of the moves they make to piece together the blocks of spectrum they use to launch LTE.

Sen Lee: If you were unable to buy T-Mobile what would you do?

Stephenson: We would not have the spectrum depth to launch LTE in some rural markets. T-Mobile has good spectrum in West Virginia, he says. AT&T does not.

Sen. Lee: What obstacles stand in the way of Sprint to remain a competitor post-merger?

Hesse: At a certain time it becomes a bridge too far. I’m concerned about how big the pie gets. With more regulation there won’t be as much innovation.

8:26 am: Sen. Amy Klobuchar, D-Minnesota, is asking questions of Stephenson. Are you prepared to offer your customers T-Mobile’s current pricing plans?

Stephenson: T-Mobile customers will be offered their current plans. Stephenson is explaining carrier subsidization of handsets.

Klobuchar: Can you say here under oath that this merger will lead to lower prices?

Stephenson: History shows that prices have tended to come down.

8:38 am: Grassley is asking Stephenson about service in Sioux City, Iowa, saying service is there.

Stephenson: Sioux City is going to take some effort. Spectrum there is held by several partnerships.

Al Franken is back after yesterday’s hearing.

He’s telling a story about back in the AT&T Ma Bell days when his grandmother would call from New York to Minnesota for precisely three minutes.

Franken to Stephenson: Is it true you’ve seen a large growth in customers because you were able to negotiate an exclusive deal with Apple on the iPhone? You don’t think Apple gave you an exclusve in the iPhone because you’re a national and not a regional player?

Stephenson: They do spread it around in Europe.

Franken: How can you argue that this deal should be analyzed locally, which goes against statements and advertising that you’re a national player?

Stephenson: The buying decision is made at the local level.

Meena: Says that his company has not been able to get a roaming agreement in place.

8:55 am: Stephenson: There’s lots of innovation taking place in the industry. Apple’s iPhone spurred Google to create Android.

Stephenson: I don’t think the merger will slow Steve Jobs from launching the iPhone 5 or 6 or whatever number is coming.

Kohl: Does T-Mobile view AT&T as a competitor?

Humm: We compare ourselves with Sprint as well as Metro and Leap.

Stephenson: The focus of our competition is on the high end of the market. If we get this acquisition done we’d like to compete against Metro PCS much more aggressively.

Kohl to Stephenson: You would almost argue to us today that what you want to do is in the national interest. This is a business deal to make your company more profitable. We should discuss it in that context. It’s not in the national interest.

Klobuchar: How do you see this merger affecting employment levels?

Stephenson: We have made a public comittment to deploy LTE, and it is a public policy object. It’s an incremental $8 billion in investment. And over the long haul it’s a jobs opportunity. But we’re not going to need two marketing and finance organizations. There will be some overlap. We have a very unique and time-tested ability. There are situations in overlap of jobs, we declare those position surplus. We find a growth area where we need to hire and we give those employees opportunities to take jobs in those areas.

Kohl to Stephenson: If approved, would you accept a condition on not using Universal Service Fund money in building out LTE?

Stephenson: I would.

Sohn: She’s attacking the idea that the idea that AT&T advertises against smaller wireless carriers is absurd.

Hesse: 99.7 percent of our customers are on national rate plans; 99 percent of our advertising is all national. Business customers buy nationally. Those are not county and state maps. We sell more of our devices through national retailers. If this isn’t a national business I don’t know what is.

9:28 am: Kohl is closing the hearing. And we’re done.